How to allocate the manpower cost during the project implementation phase?

Para 16 of Ind AS 16 states that, the cost of an item of property, plant and equipment (PPE) comprises any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Further, an extract of Para 17 of Ind AS 16 provides that costs of employee benefits (as defined in Ind AS 19, Employee Benefits) arising directly from the construction or acquisition of the item of PPE can be considered as the directly attributable cost of an item of PPE.

The doubt arises in the case of manpower costs related to the roles and responsibilities of handling the financial activities during the project implementation phase i.e. whether such manpower costs should be capitalized or whether such costs should be expensed off.

In this regard, the Expert Advisory Committee (EAC) of ICAI has provided an opinion on a similar issue, wherein it stated that such manpower costs that are directly attributable to bringing the PPE/Project to the location and condition necessary for it to be capable of operating in the manner intended by management, should be capitalized to the PPE/Project and the rest should be charged to the Statement of Profit and Loss.

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